July 7, 2008

Big Planters Ready for Bigger Bounce

By Ooi Tee Ching

BIG plantation companies are starting to plant rubber trees on hilly land as rubber prices hit records, Plantation Industries and Commodities Minister Datuk Peter Chin said.

At current record prices, companies can make more money planting rubber trees than oil palm trees on marginal soil. Marginal soil is land on hilly areas that are typically not so fertile.

"IOI Corp Bhd is replacing oil palm trees that had succumbed to the ganoderma disease with rubber trees. Sime Darby Bhd is also planting rubber trees on steep slopes where it is not suitable for oil palm trees," Chin said.

"At current high rubber prices, the investment return on one hectare is better than that of oil palm planted on marginal soil," he told Business Times in a recent interview in Kuala Lumpur.

Last week, centrifuge latex at the physical market of the Malaysian Rubber Exchange traded at its all time high of RM7.18 per kg.

From its lowest level of RM1.50 per kg in 2001, latex prices have been rising until the middle of 2006. Then, after fluctuating for 12 months, prices started to climb again to current record levels of more than RM7.00 per kg.

Large plantation companies may be big producers of palm oil but when it comes to rubber, they are bit part players.

"Last year, out of the 1.2 million tonnes of natural rubber produced, only 5.6 per cent or 66,625 tonnes were from estates. Smallholders supply most of the country's latex," he said.

Chin said big plantation companies can get pioneer status and investment tax allowance to plant rubber trees on a large scale under the forest plantation scheme.

In 2002, the federal government extended incentives given to approved agricultural projects under schedule 4(A) of the Income Tax Act 1967 to forest plantations.

"This is in the form of deductions for capital expenditure to clear at least 50ha land, construct road and bridges in the farm and plant rubber trees," Chin said. "The deductible expenses stretch for 25 years, the average lifespan of rubber trees," he added.

As of last year, there are 1.23 million hectares of land planted with rubber trees in Malaysia.

"Although the total area planted with rubber trees has been shrinking since the 1980s, my ministry has set a cut-off point at 1.20 million hectares to ensure minimum annual production of a million tonnes," he said.

Chin expects planted areas to start expanding again in the next five years.

"There will be 10,000ha new plantings in Sabah, such as in Pulau Banggi, Kudat, Bengkoka and Pitas.

"The Sarawak state government, under its rural development programme, has designated 30,000ha in Seri Aman, Betong and Seratok for new rubber plantings," Chin said.

This year, the Rubber Industry Smallholders' Development Authority (Risda) is carrying out new plantings on 1,000ha in Peninsular Malaysia.

"Apart from that, Risda is using cess money to carry out replanting of rubber. Every year, they replant around 20,000ha," the minister said.

Chin said high rubber prices are also encouraging rubber tappers to increase their output. He expects Malaysia's rubber output to touch 1.26 million tonnes, five per cent more than last year's 1.20 million tonnes.

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